Imagine you have some workers and some handheld computers that you can use to ta

Question

Imagine you have some workers and some handheld computers that you can use to take inventory at a warehouse. There are diminishing returns to taking inventory. If one worker uses one computer, he can inventory 150 items per hour. Two workers sharing a computer can together inventory 200 items per hour. Three workers sharing a computer can together inventory 250 items per hour. And four or more workers sharing a computer can together inventory fewer than 260 items per hour. Computers cost $125 each and you must pay each worker $30 per hour.

Explanation / Answer

The required table is as below:

Workers (a)

Items per hour (b)

Marginal productivity in items (b ÷a)

Computer cost $125 each

Labor cost $30 per hour

1

150

150

$125

$30

2

200

100

$250

$30

3

250

83.33

$375

$30

4

260

65

$500

$30

From the above table it is revealed that marginal productivity decreases as the increase in workers. It is not at all a good sign of progress. Such diminishing returns lead to increase computer cost, since the number of worker increases. The labor cost per hour is fixed but it increases in totality, since the number of hours must increase with the increase in labor.

Workers (a)

Items per hour (b)

Marginal productivity in items (b ÷a)

Computer cost $125 each

Labor cost $30 per hour

1

150

150

$125

$30

2

200

100

$250

$30

3

250

83.33

$375

$30

4

260

65

$500

$30

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